Stefan Leins*
During my research at a major Swiss bank shortly after the 2008 global financial crisis, sustainable finance quickly emerged as one of the industry’s hot new topics. I clearly remember a senior financial analyst, eyes shining, singing its praises to his team: sustainability didn’t have to mean sacrificing returns, went the thinking. On the contrary, the new motto was “doing well by doing good” – which meant earning well by doing good.
From maximizing profits...
Up to that point, sustainability had largely been understood as an ethical counterpoint to capitalist market activity. In 1970, Milton Friedman, Nobel economics laureate, proclaimed that a company’s social responsibility was solely that of increasing profits. By this he meant that the market’s only commitment was to the logic of profit maximization – a pursuit that everyone benefitted from, supposedly, as it drove the market economy.
This worldview held little space for social responsibility or environmental issues. While investors concerned about the social or environmental impacts of their investments existed at the time, they were few and far between and were often ridiculed by “real” economists.
…to considering social and environmental issues
The financial crisis changed this in one fell swoop. Movements such as Occupy Wall Street condemned many of the financial industry’s practices as short-sighted, exploitative, and socially harmful. The public image of bankers was tarnished; the once self-confident “masters of the universe” were now regarded by many as “banksters”. Even outside activist circles, people began to doubt the moral integrity of the banking sector. As pressure grew, so too did the sector’s desire to show a different face. Social and environmental issues, previously considered marginal, suddenly entered discussions about investments.
Sustainable finance: mainly just marketing
The way out of moral criticism was to integrate sustainability into everyday financial market practice. From 2010 onwards, “sustainable finance” – previously a niche topic – shot into the mainstream. No self-respecting financial institution wanted its products to be seen as anything other than “sustainable”. Much of this was marketing: a performative effort designed to show that the industry understood what the public now expected.
At the same time, this change also caused consternation in the banking world. Behind closed doors, many bankers wondered what all this had to do with their actual mission. “We’re a bank, not a church,” is how a senior representative once put it to me, implicitly acknowledging Friedman’s fundamental belief: that financial markets exist not to follow moral imperatives, but to generate profits.
ESG: a form of risk management
What was needed, therefore, was an approach that reconciled market logic with sustainability promises. An acronym provided the answer: ESG – or “Environmental, Social, and Governance” – promised a form of sustainability that could be measured, calculated, and quantified. This shifted the focus from moral appeals to key figures, ratings, and data. ESG was less normative – and more technocratic. For many bankers, this was precisely its appeal: They could argue that use of ESG criteria minimized risks – such as potential environmental scandals, legal disputes, or reputational damage. Sustainability became a form of risk management.
Soon, some took it a step further. Why should ESG only reduce risks – couldn’t it also increase returns? From the mid-2010s onwards, this idea found its way into financial practice on a broader scale. A new term – “double bottom line” – emerged in Bankspeak, suggesting that social and financial returns could be achieved together. The “triple bottom line” soon followed – celebrating the ostensible achievement of environmental, social, and financial gain in perfect harmony.
Studies were commissioned to prove that ESG made sense not only ethically, but also economically. The results were mixed. But that didn’t deter the narrative. It was too tempting, and too good for business, to drop. Heeding ESG wasn’t only the right thing to do – it was also a surefire way of securing higher returns in the long term. A narrative that probably even Milton Friedman could have embraced.
Profit maximization and social acceptance
Today, the ESG market is major part of the global financial industry. You’ll find ESG in pension fund regulations, in company reports, and in the product descriptions of almost all major banks. This is a welcome development, at least for now, for anyone who cares about social and environmental standards.
But let’s keep in mind: This change resulted less from a serious debate on sustainability than from the need to reconcile the guiding principle of profit maximization with social acceptability.
Sustainability thus remains a fragile concept in the financial market, susceptible to dilution and greenwashing. When today’s bankers talk about sustainable finance, it behoves us to take a closer look at what’s actually being sold.
* Stefan Leins, Professor of Social Anthropology and Member of the CDE Board, has conducted research on sustainability in financial markets. His article, ‘Responsible investment’: ESG and the post-crisis ethical order, is regarded as the standard reference on the new role of sustainability in financial markets.
